A Traditional Mutual Fund...Under the Hood View.

A Traditional Mutual Fund...Under the Hood View.

Prospective clients come to us regularly with their statement in hand. They may have heard me give a talk, found our website or been introduced by a current client or friend and one of the first things they ask is, "What do I really own?" It's a good question - many mutual funds have arbitrary names that mean nothing to the average investor.

Sometimes names will be pretty clear - Total Stock Market Index or Total Bond Market. Many times, however, it's not so clear. The Fundamental Advantage Fund, Washington Mutual, Macro Opportunities, etc.

What my job is, is to lift the hood and look underneath and see what the fund really owns. Remember that a mutual fund is an easy way to own a diversified portfolio by making only one purchase. Owners of the fund each get a slice of the pie of a portfolio of stocks, bonds or other investments.

Also remember that our clients are coming to us because they care about the kinds of investments they own. They want to own solar and wind companies, green real estate, technological leaders in design and energy efficiency. They want to avoid fossil fuels, guns, child labor, polluters, chemicals, mining and other offenders. It's hard to tell what you really own by just looking at the name of the fund.

That's where I come in. I'll take that statement and break down each fund the prospective client owns and list out the individual companies that may not align with their values.

Now most mutual funds have a lot of what I call neutral holdings - neither overly positive nor egregious offenders. Very few traditional funds have outright positive, next economy types of investments. And the majority of traditional funds have 12%-20% of what I have dubbed "Questionable Assets"

Positive Investments

  • Alternative Energy
  • Energy Efficiency
  • Water
  • Green Building/Real Estate
  • Natural & Organic Foods
  • Technology
  • Green/Community Finance

Questionable Assets

  • Fossil Fuel extraction, processing or transportation
  • Agri-Business
  • Materials & Mining
  • Fossil Fuel-Based Utilities
  • Defense Contractors & Weapons
  • Chemicals
  • Tobacco

Let's break down a real mutual fund that we see often in prospective client accounts, the $92 billion American Funds Investment Company of America Fund. American Funds is one of the largest fund families in the world, and are very respected in the traditional investment industry.

If you own this fund, here are some of the companies that you actually own: (Data from Morningstar Direct as of 12/31/17)

  • Philip Morris Internationsl - Tobacco
  • General Dynamics - Defense Contractor
  • Twenty-First Century Fox - Media
  • Freeport-McMoRan - Mining
  • Canadian Natural Resources - Fossil Fuels
  • Dominion Energy - Fossil Fuel Utility
  • Exxon Mobil - Fossil Fuels
  • Total - Fossil Fuels
  • DowDuPont - Chemicals
  • Exelon - Fossil Fuel Utility
  • Lockheed Martin - Defense Contractor
  • Suncor Energy - Fossil Fuels
  • Conagra Brands - Big Ag
  • BHP Billiton - Mining
  • Southern Company - Fossil Fuel Utility
  • Apache - Fossil Fuels
  • Enbridge - Fossil Fuel Pipelines
  • Wells Fargo - Big Bank
  • Altria Group - Tobacco
  • EOG Resources - Fossil Fuels
  • British American Tobacco - Tobacco
  • Imperial Brands - Tobacco
  • Chevron - Fossil Fuels
  • Noble Energy - Fossil Fuels
  • Halliburton - Fossil Fuels
  • Concho Resources - Fossil Fuels
  • Royal Dutch Shell - Fossil Fuels
  • Schlumberger - Fossil Fuels
  • American Electric Power - Fossil Fuel Utility
  • BP - Fossil Fuels
  • Plains GP Holdings - Fossil Fuels
  • Rio Tinto - Mining
  • Chesapeake Energy - Fossil Fuels
  • Kinder Morgan - Fossil Fuel Pipelines

Now, I'm not picking on American Funds. The vast majority of traditionally-managed funds include companies like this. It's not in their mandate to have a social or environmental conscious which is why you have to be very intentional about how you choose your investments.

And, you can't always rely on third-party assessments to help either. For example, this fund is given a "Four Globe" (out of five) rating from Morningstar. That means that it gets an above average sustainability rating. I would never consider adding this fund to one of our portfolios.

So it takes real work, research and due diligence to truly understand what you're investing in. This is a big part of my job everyday, knowing what is in our fund holdings, analyzing what prospective clients own and figuring out the best way to help people invest with their values.

What's in your mutual funds?

What I'm Reading...

What I'm Reading...

What I'm Reading...

What I'm Reading...